THE COMMISSIONER OF INCOME TAX vs. M/S V S LAD and SONS

: 1 : IN THE HIGH COURT OF KARNATAKA DHARWAD BENCH DATED THIS THE 27TH DAY OF NOVEMBER 2019 PRESENT THE HON’BLE MR.JUSTICE ALOK ARADHE

AND

THE HON’BLE MR.JUSTICE N.S.SANJAY GOWDA

I.T.A. NO.100103/2014

BETWEEN:

INCOME TAX, CIRCLE-2(3), BANGALORE. …APPELLANTS (BY SRI.TULAJAPPA KALBURGI, ADV.)

AND:

M/S. V.S.LAD & SONS, PRASANTH NIVAS, KRISHNA NAGAR, SANDUR 583120, BALLARI DISTRICT, PAN AACFV3909R. …RESPONDENT (BY SRI.A.SHANKAR, SENIOR ADV.)

THIS ITA IS FILED UNDER SECTION 260A OF THE INCOME TAX ACT, 1961 AGAINST THE ORDER PASSED IN ITA NO.20/BANG/2013 DATED 13.06.2014 ON THE FILE OF THE INCOME TAX APPELLATE TRIBUNAL, ‘C’ BENCH, BANGALORE DISMISSING THE APPEAL FILED BY THE ASSESSEE AND ALLOWING THE APPEAL FILED BY THE ASSESSEE.

THIS ITA COMING ON FOR FINAL HEARING, THIS DAY, ALOK ARADHE J., DELIVERED THE FOLLOWING:

: 2 : JUDGMENT Notice on behalf of assessee is accepted by Mr.A.Shankar, learned Senior counsel.

: 3 : 4. With consent of learned counsel for the parties, the same is heard finally.

: 4 : order dated 30.12.2009 in respect of the assessment year 2008-09 completed the assessment by disallowing the depreciation claimed on land obtained on lease for mining, depreciation on wind mill of Unit– IV and claim made under Section 80IA. 6. Being aggrieved, the assessee as well as revenue preferred the appeals before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) on the issue of Section 80IA inter alia held that the action of Appellate Authority to carry forward the loss of Unit-I and Unit-II for setting off against the income of these units in succeeding years is incorrect. It was further held that addition was rightly made on the depreciation claimed by the assessee in respect of land obtained on lease for mining purposes. The Commissioner also up held the disallowance of the depreciation on the wind mills. Being aggrieved by the order passed by the Commissioner of Income Tax (Appeals), the assessee as well as the revenue preferred appeals before the

: 5 : Income Tax Appellate Tribunal. The Income Tax Appellate Tribunal by an order dated 13.06.2014 upheld the claim of the assessee and allowed its appeal, whereas the appeal filed by the revenue was dismissed. In the aforesaid factual background, this appeal has been filed. 7. Learned counsel for the revenue submitted that the Income Tax Appellate Tribunal grossly erred in holding that the depreciation claimed against the amount paid towards acquisition of lease hold rights over the land for a period of 30 years, is a revenue expenditure and is thus eligible for deduction under Section 37(1) of the Act. 8. It is further submitted that the Income Tax Appellate Tribunal ought to have appreciated that under Section 32 of the Act, the assessee was not entitled to depreciation on the wind mills which was not actually put to use and grossly erred in reversing

: 6 : the findings recorded by the Assessing Officer as well as Commissioner of Income Tax (Appeals). 9. On the other hand, learned Senior counsel for the assessee has invited the attention of this Court to paragraph 37 of the order passed by the Income Tax Appellate Tribunal and has submitted that lump sum rent paid for the entire period of 30 years has to be considered as revenue expenditure and the Commissioner of Income Tax (Appeals) wrongly distinguished the decision as a case of lease of factory building. Learned Senior counsel for the revenue has further submitted that the concept of ‘block of assets’ has been introduced with effect from 01.04.1988 and therefore, the question of depreciation under Section 32 of the Act pales into insignificance. It is further submitted that the Income Tax Appellate Tribunal by taking into account the circular dated 23.09.1986 issued by Central Board of Direct Taxes, by placing reliance on the decision of the Delhi High Court in CIT vs. Bharat Aluminium Co. Ltd., 187 Taxman 111

: 7 : has rightly allowed the depreciation as the wind mills was not actually put to use. 10. We have considered the submission made by learned counsel for the parties and have perused the record. 11. The Assessing Officer by taking into account the expression “used”, Section 32 of the Act has held that the aforesaid expression denotes actual use and not merely ready for use. Accordingly, the Assessing Officer has held that the assessee claim for depreciation on the wind mills is not admissible as per provisions of Section 32 of the Act. Aforesaid finding has been affirmed in appeal by the Commissioner of Income Tax (Appeals). However, the Tribunal has held that after introduction of the concept of ‘block of assets’ with effect from 01.11.1988, the question of use of assets for the purpose of depreciation has become irrelevant.

: 8 : 12. In support of the aforesaid submission, Income Tax Appellate Tribunal has placed reliance on decision in CIT vs. Bharat Aluminium Co. Ltd. supra and has taken into account the definition of ‘block of assets’ as defined under Section 2(11) of the Act which reads as under: “block of assets” means a group of assets falling within a class of assets comprising – (a) tangible assets, being buildings, machinery, plant or furniture; (b) intangible assets, being know- how, patents, copyrights, trade-marks, licences, franchises or any other business or commercial rights of similar nature, in respect of which the same percentage of depreciation is prescribed;” 13. The Income Tax Appellate Tribunal has further held that prior to introduction of new concept of ‘block of assets’ with effect from 01.04.1988, the depreciation used to be claimed separately on each asset. The legislature found that this was a

: 9 : cumbersome procedure leading to various difficulties and therefore, the concept of ‘block of assets’ was introduced. It is further been held that the concept of ‘block of assets’ as reflected in the Central Board of Direct Taxes dated 23.09.1986 that once the various assets are clubbed together, they become block assets within the meaning of Section 2(11) of the Act and it becomes one asset and every time new asset is acquired, it is thrown into common hotchpotch i.e., block of asset on meeting the requirement of depreciation being allowable at the same rate. It is further been held that the individual asset meet their identity and become a new separate part of block of asset, insofar as calculation of depreciation is concerned. 14. Thus, the Income Tax Appellate Tribunal has held that the assessee is entitled to claim depreciation on the value of wind mills. We are in agreement with the view taken by the Income Tax Appellate Tribunal for the reasons which we have

: 10 : mentioned supra. Accordingly, the first substantial question of law is answered in the affirmative and in favour of the assessee and against the revenue. 15. So far as second substantial question of law is concerned, the Tribunal has held that the claim of the assessees cannot fall within the purview of Section 30 of the Act because the aforesaid provision only contains rent paid on the building. The claim in respect of depreciation towards acquisition of lease hold right over the land has to be considered under Section 37(1) of the Act. This Court in CIT vs. HMT Ltd., 203 ITR 820 (Kar.), has held that land for acquiring the lease hold rights has nothing but rent paid in advance. The rent paid in advance was for acquiring lease hold rights over the land and such expenditure has been considered by this Court as revenue expenditure. Therefore, the lump sum rent paid for a period of 30 years for which the land is taken on rent has to be considered as revenue expenditure and therefore, the prayer of the assessee has been accepted. We do not

: 11 : find any infirmity with the view taken by the Income Tax Appellate Tribunal. In the result, the second substantial question of law is also answered in the affirmative and in favour of the assessee and against the revenue. In view of preceding analysis, the appeal fails and is hereby dismissed.

Sd/- JUDGE

Sd/- JUDGE

Rsh